Sunday, 31 January 2010

The daily candle chart shows just how weak the market is.Normally you could expect at least 1 or 2 day countertrend reversal days (higher low/higher high days.)The market is oversold but could easily keep declining into a 21-22 day low.On 11/02 the market will have run 150 days from the 4096 low (cash index) balancing time (1504 point range)At the high the market was up 216 days the range from the low was 2140,almost a perfect square.

On the basis that this count seems to be working what would be the targets for wave 5 ?Wave 5 is usually equal to or 1.618 x the length of wave 1.Wave 1 was 2564 points so equality would give a target of 8166 while a 1.618 expansion yields a target of 6581 The lower target seems more likely as the first one is too far above the wave 3 low.6581 is also a fibonacci 38% decline from 10730,so there is "clustering" .There would also then be the possibility of a double bottom at 6470 and 6581.6581 is also close to the level at which wave 5 would be 0.618 times wave 3(6610) Wave 5 can also be 2.618 times wave 1 but best not to explore that possibility at this stage !I have no idea whether this target will be reached but it is worth being aware of.The rising 200 dma would need to be overcome first,so more distribution would likely be necessary.A decline back to the lows would be in line with Japan's experience after their banking crisis.

Saturday, 30 January 2010

The black candle this week took out the previous weeks low and the decline seems to be resuming.The decline should accelerate if we take out the 2 previous swing lows at 1.58 and 1.59.Last weeks high was a lower swing high and Gann's "safest place to sell"Stops would go above the high.It also came 52 weeks after the low ie a 1 year cycle.

There are now lots of monthly bearish engulfing candlesticks on the stock index charts.This is normally a strong medium term bearish signal.The chart shown is the ftse100 nearest future continuation chart.

Friday, 29 January 2010

I have labelled the false break as a 3rd high and marked in some of the other 3 highs/3 lows setups that have appeared on this chart.

I have added a P&F chart for a different perspective.P&F is not something I use very much but has advantages,like Gann swing charts in filtering out noise (and providing price targets)(chart from StockCharts.com)

933 points was the first range down and this has shown a tendency to repeat.In Gann terms it is a "natural" range that empirical observation throws up.Some might call it a fractal.If,as in this case a 933 point range coincides with other technically derived targets we should pay attention.

Sunday, 24 January 2010

It would have been right to sell gold on 13/01 but it is always dangerous to sell a bull market.There is some support at 1080 and I would protect shorts with a stoploss.I suspect gold will trade down to the 1025 area.

Friday, 22 January 2010

Google has gapped down and broken the trendline on the daily chart I posted.All 3 charts,daily,weekly and monthly are now in synch and we should test support at 484 (38.2% retracement/144 point decline,200 dma).A glance at the longer term chart shows Google has a tendency to make bottoms in March.

Yesterday's price action confirmed sell signals in most equity markets.Some,like the Dax had already shown their hand as discussed in the Dax post.On the Ftse chart shown,we have broken the low of the last 3 weeks with a big red bar (red signifying a close below the open, rather like a black candlestick) and break of the 5 week moving average.Markets have traced out "false break" patterns with the New Year rallies and in some cases broken out of the rising wedge patterns.The combination of fibonacci retracements in price and time seems to have stopped the Ftse in its tracks.The rally lasted 45 weeks,one eighth of 360 and an important Gann cycle(Gann called one of his books "45 years on Wall St." to illustrate the importance he attached to it as a number).The recent high (5600) is now a stop-loss level.On the Dow the wave count seems to be working and we now have an engulfing weekly candle.The next question is how far we can expect markets to fall ? I would focus on 38% retracements (of the March to Jan range) and 200 day moving average support initially.

Monday, 18 January 2010

My attempt at an Elliott wave count,with Gann lines thrown in.I do not profess to be an Elliott wave expert and I know that others are counting this differently.Moving much beyond 10800 (Gann natural resistance 3600x3 and region of the wave 1 low) would suggest the count is wrong.

Saturday, 16 January 2010

The performance of the mining stocks since the panic lows last year has been phenomenal,presumably driven by optimism about Chinese and emerging market growth .Many of the charts look similar to this one of Billiton (I have posted the daily,weekly and monthly candle charts) Billiton looks vulnerable to a double top.Last week was a reversal,making new highs but closing below the previous week's close.I believe the candlestick terminology is "dark cloud cover" - a higher open,followed by a close in the lower half of the previous candle's real body.On the monthly chart we are threatening to form a bearish long tailed candle as we did at the last high but we will have to wait till the end of January to confirm this.( I am not sure what this pattern is called) We are 87 weeks from the old high,2 weeks short of a fibonacci 89 and 60 weeks from the low.Natural fibonacci levels (5,8,13,21...) have provided good support/resistance,rather like the Apple chart I posted.At the very least this looks vulnerable to profit-taking.I think it is useful to look at daily,weekly and monthly charts for the different insights they reveal.Quarterly and yearly charts can also be revealing.The longer term charts give longer-term signals while the short term chart signals are more sensitive for positioning.(and more prone to failure)

Friday was a weak day in markets.The Dax made an engulfing candlestick on the weekly chart ie moved higher than the previous week's high but traded (and closed) lower than the previous week's low.It actually engulfed the previous 2 weeks ranges.This suggests a rapid change in investor sentiment.For those interested in such things Friday was a solar eclipse. We reached 6094 on Monday,2 days before the 6 month cycle from the July 13 low and 18 points short of the 6112 level where wave 2 would have equalled wave 1. 6000 was a big level for a variety of reasons,not least Gann natural resistance numbers and ranges -3600(low 3589)+2400,4500(low 4524)+1500,7200 (high 7231)-1200 etc .However the uptrend line has not broken yet and should be watched closely.There is also support at 5800-5900 to be overcome .The big picture looks quite dangerous to me,with a possible pullback to the neckline of a big top pattern.Crosses of the 10 and 20 week moving averages have given good signals in the past so could be used as a "mechanical" signal for trend-followers.Other indices showed signs of hestitation such as the daily evening star pattern on Monday on the Ftse and the weekly doji on the Dow but without weekly engulfing patterns.

Friday, 15 January 2010

The dollar has had a 3 week counter-trend decline but looks ready to resume its rally.So far there has been no sense of panic amongst the $ carry trade community but further dollar strength may undermine the "reflation" trade

Wednesday, 13 January 2010

I have put some Gann angles on this chart and the fib retracement.I am wondering if yesterdays reversal marks the start of a final C wave to this correction in what I believe remains a powerful bull market.

Ftse is up 44 weeks from the low which is one short of a 45 week cycle.45 weeks is also 0.618% of 73 which is the number of weeks from high to low (and approximately half the square of 144),so we have a 61.8% retracement in time combined with a 61.8% retracement of price. Monday's high was 5600 so we have also achieved a 61.8% quantum move from the 3460 low (3460x1.618=5498)

Tuesday, 12 January 2010

I thought coffee had broken out in mid-December,but it pulled back sharply,partly perhaps due to the strength in the dollar.However it seems to have formed another low around the the natural time cycle of the winter solstice and a 4th attempt to break out seems to be occurring.4th attempts are usually successful.The measured breakout target would be 176.A "normal" 90 day move would take it up into end March,the Spring equinox,so if we do b reak out this date might be worth watching.

Thursday, 7 January 2010

Given that we are approaching the 1 year cycle from last January's high we could look at the yearly ranges to see if there is a natural cycle evident in price.This would add the element of price to time and could increase our confidence in any reversal that might develop. The S&P bottomed at 666 in March. A square of price to time would be 360 (360 degrees being a year).360 plus 666 is 1026,which is below the market,which at 1140 is currently 474 points above the low.We know that 480 is 1.33 times 360 so this suggests a possible square at 1146 on 06/01/2010 +/- 2-3 days . Price would "square" time here at a ratio of 1.33:1. Interestingly the Dow is 3600 points down from the high at 10598 but I haven't noticed an obvious time relationship (or "square") from the high to here.In theory Gann squares can be observed on different time frames ,even on intraday charts.At major turning points Gann squares in different time frames should all converge.

Many markets have opened the year strong and taken out resistance levels .The S&P is trading above the 50% retracement at 1121,for example. Apple has broken out above its old high and for those who bought, a stoploss could be placed 4 points below the breakout level.Under Gann's rule a valid breakout should not retrace 3 points below the high.Amazon has been weak and seems to be respecting the square of 9 setup,with two highs present on the chart now.Gold is rallying from the 1070 support area.The question for me is whether we are seeing genuine breakouts or whether we see the same pattern as last year when many markets opened strong and peaked in the first or second week of January (subsequently bottoming in March) Rising wedge patterns also make me cautious(as for instance in the Marks & Spencer chart).For me the dollar chart may hold the key and I think continuing dollar strength from oversold levels may undermine the equity markets before long.Bank share performance may also be critical as some are showing possible top development.However for now the trends are up and I would watch the 1 year cycle from Jan 09 highs and 6 month cycle from July lows,which are clustered closely together, for signs of a reversal and breaking back below resistance,which would be a strong signal to sell.(see for example the Dax charts posted earlier.)Selling call options with a strike price above resistance levels might be a valid strategy as I think markets will struggle to sustain rallies from here .(eg March 6200 Dax calls or 5600 FTSE calls )

As I understand it a Gann square is basically a natural cycle represented by an overlay in the shape of the square,whose geometrical divisions represent potential support and resistance.144 is one such natural square that Gann is known to have used a lot,being the square of 12, but other numbers can be used like 45,90,180,360 or multiples thereof (based on the cycle of a year which is 360 degrees in Gann theory) .Numbers peculiar to an individual market based on its own trading history may also be used.The theory is that at the end of the square,when price and time are equal or in equilibrium the market is perfectly balanced and a change in trend will often occur.Marks & Spencer had resistance at 400 based on a doubling of the low at 200 and a 38% retracement of the major range.The Elliot wave pattern also suggested a top.

The square of 144 overlay also suggested an imminent turning point as previous divisions had produced support and resistance (I have marked some with circles,such as the high around 385 which was the midpoint in time (72 days) and 75% in price (108 points).When the stock reached the end of the square (144 days) it fell sharply,gapping down, having just failed to reach the top of the square.